Browse Month: January 2012

Annual Commercial Real Estate Conference Chicago – Fireside Chat with Debra Cafaro and Sam Zell

I had the pleasure of attending the RECG 10th Annual Commercial Real Estate Forecast Conference in Chicago this week – starting off my Tuesday morning with a fireside chat between Debra Cafaro and Sam Zell.  .    Well over 1000 commercial real estate practitioners, lenders, developers and others were standing room only at the event.  Here’s some of the “live” recap from Debra and Sam’s chat:

 

8:06 am    Good Morning !  Things are getting started shortly.

8:15 am   Over 1000 people registered for this 10Th annual Commercial Real Estate Conference.  Organizers say it’s pre-recession levels.  Perhaps a good sign.

8:19 am Sam Zell and Debra Cafaro starting their fireside chat.

8:21 am Zell:  “Come clean by the end of ’13”

8:23 am  Zell:  “very little likelihood we’ll see new supply in the next 24-36 months”

8:25 am  Cafaro: “In a market with mixed messages – How do you decide to move forward as an investor, etc?”   Zell:  “Right now, the opportunities are linear.  Always transactions, always opportunity, unique situations” “Pick your spots, have a lot of patience.”

8:29 am  Cafaro: ” Retail thoughts?”  Zell:  “Retail, more than any other form of real estate has a very serious obsolesence (sp?) factor” “Disposable income has modified, hard to see growth in retail”

8:32 am  Cafaro: “We’re seeing you invest in partnership in 200 S Wacker, relatively small – why?”  Zell: ” It was very cheap, and made sense.  That was the only office building that made sense”

8:36 am  Zell: (on office) “We’re in a major downsizing.  There are many multi-national corporations in the US that have more employees overseas than previous.  And there has been no employee growth so…no growth”

8:38 am Zell:  (on hotel) “Hotel business has been largely over-supplied.  Tourism is attractive, dollar is relatively cheap, hotel business in 24/7 cities could benefit from no new supply”

8:40 am Cafaro:  “Multifamily – you love apartments, can you talk about EQR and the multifamily sector?”  Zell: “Have to add in single family market here…I think, American people have adjusted their love affair with single family house.   This dramatic mental change has lead to highest occupancy rates, somewhat unlimited demand….Multifamily business is, at this moment, best part of real estate industry – and will probably stay this way”

8:48 am Cafaro: “International – you’ve invested all over the world.  Let’s stay away from Europe for a second and talk about the Brazils, the Mongolias,….”    Zell:  “Simple answer.  Demand.”

8:50 am Zell ” Beauty of our international focus is where is the demand today and where will it be tomorrow.   Mongolia – enormous resources and geographically closer to China…and their economy is growing at rate of 20%”

8:52 am Cafaro:  “Let’s talk about our European leaders….and real estate”    Zell: “Why would anyone in their right mind invested in Europe?  There is zero or negative growth”

8:54 am Cafaro:  “You feel very strongly about the political environment”  Zell: “We cannot grow unless people are confident.  Destabilization of American economy is very dangerous.  We are the most predictable country in the world”

8:58 am Zell: “US cannot grow until there has been a replenishment of confidence.  This can only happen with the right leadership”

8:59 am  Cafaro: “What would you be leading with to get the economy and real estate market back?”  Zell:  “I would stop all new regulations.  We can’t handle what we have already”

9:04 am Cafaro: “You have truly been an amazing visionary in a way that has benefited all of us.  What do you want your legacy to be?   Zell: “I have always been a man of my word.   Clarity, principled, somebody who was given the opportunity.

9:07 am Zell:  ” I want people to think I thought about things, reflected on them, and had a global view.   And that I followed the 11th commandment:  Thou shall not take oneself seriously.”

9:08 am Cafaro “Thank you Sam”

 

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Mike Eppli’s Talk To NAIOP: Apartments Look Healthy In 2012

Mike Eppli, Ph.D. Addresses NAIOP

In his “2012 Economic Forecast…The Road To Recovery” Mike Eppli, Professor of Finance and Robert B. Bell Sr. Chair in Real Estate at Marquette University made a key assumption about the future, charted out the recent past and put it together to conclude “Real estate is the best relative investment for 2012”.

To a standing-room-only Riverway Auditorium in Rosemont, Eppli set down one ground rule – that for the predictions to hold, short term interest rates would need to remain low, such as what the Fed policy appears to be.

“For the foreseeable short term future, that’s what the Fed keeps saying.  There’s not a lot of inflation pressure in the market today.”

Eppli’s preferred commercial real estate sectors for 2012 are apartments and retail.  We’ll take a look at retail and other sectors in later posts.  For now: apartments.

Apartments

Even though growth of households (household defined as that population unit required for rental occupation or home ownership) slowed in the 2000s, current research suggests a nationwide bump in households amounting near 350,000. Against a backdrop of a base 35 million apartments in the US, a pent-up demand for apartment housing is stemming from an oft-discussed trend: After completing school, college students are coming home and staying there – approximately 1.6 million young adults in this situation currently that would under different economic circumstances be in apartments.  As jobs return – and the latest numbers show some recovery there – this demand will hit the apartment market.  What will further stimulate demand, Eppli said, is the fact that the average age of marriage is on the rise in the US, which means that adults are staying in rental units longer than they have historically.  Delayed entries into apartments by students plus delayed exits from apartments into single family homes by marrieds equals heightened demand for rental units.

Professor Eppli had a lot to say about the entire commercial real estate universe.  Stay tuned for more gazing into the tea leaves — as well as some tips on how to put the info to work —  here at The Source.

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The 2012 Prediction Season: What’s Coming And Why Do You Want To Know?

The Crystal Ball
The Crystal Ball

It’s January in Chicago at The Source HQ.  The traditional climate may have left us —  very little snow and bitter cold thus far, thank you very much.  But one thing hasn’t changed:  it’s prediction season in the commercial real estate business.

Perched as we are on the edge of a new year, we struggle to get a narrative of 2012 before 2012 happens.  We sample the economic winds and peer into the tea leaves, trying to divine a trend, spot an opportunity, separate signal from noise.  Industry leaders share their outlooks, government agencies publish their data, our personal networks in our markets keep our ears to the ground.  And we pay close attention.

But why, exactly?

It’s one thing to read and follow this stuff, but how exactly might we use it?  That’s not so clear in every case. To hear that your local mall’s anchor tenant is expanding, prompting a friendly neighborhood tenant rep to cocktail-napkin that mall’s numbers and adjust expectations about the coming year’s negotiations – well, that’s pretty direct use of market intelligence.

But what exactly do you do when you hear something more diffuse and abstract, but with no less potential impact to your neighborhood beat?  When such-and-such agency or pundit proclaims a nationwide rise in medical-retail tenants is expected to continue…and that aforementioned mall has no such tenant yet?

This is a question we’re going to be exploring here at The Source this month.  We’ll be looking at a series of predictions, but what’s new is we’re going to be starting a discussion on how to use these predictions to get in front of opportunities, better serve communities and add value to transactions.  Steps to take to put these forecasts to work and make sense of abstract economic signals.

That’s my prediction, anyway.  I might be wrong.

 

 

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RealComm CEO Jim Young On Technology And CRE

Managing technology change in commercial real estate is a challenge with a lot of dimensions.  The act of staying on top of new sources of and tools for market data might be the first thing we think of when we consider technology change in our industry. But change doesn’t stop there.

Office property managers, brokers and reps already have a giant task in meeting the needs of clients.  Today, evolving technology is shifting those needs more than ever before. How can we relate these changes to our practice?

One way is to look for how specific technologies change the expectations of users of office space.  Take cloud computing.  When we hear about cloud computing, it’s tempting to write off the trend as something that we on the physical-world side of things don’t have to worry about but the IT guys and gals in the back rooms of large operations do.

As RealComm CEO Jim Young points out in the below video, nothing could be further from the truth.   The rise of cloud computing means, among other things, an expectation of constant wireless access to business applications by way of pad, phone and laptop.  That means that connectivity — “bars” on smart phones — are now a major deliverable for office space, something that today’s college grad workers and tenants can’t — and won’t — do without.

The can of worms this realization alone opens for property managers, brokers and reps is huge.  Are rent level calculations up to date?  And how were these decisions made?

A soup-to-nuts, interdepartmental approach to these questions is counseled by Young in the following video shot at the Atlanta Summit in 2011.  Thanks much to Coy Davidson for posting the video.     

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